The United States dropped Argentina on Monday from its system of trade preferences, citing the South American country's failure to pay court-ordered damages of $300 million plus interest to two U.S. companies.
Until Argentina pays up, the country no longer qualifies under a U.S. trade preferences law that enabled $477 million in Argentine goods to enter the United States duty-free last year, U.S. Trade Representative Ron Kirk said.
Nearly all the world's countries get the U.S. preferences, which as of Monday apply as well to the Republic of South Sudan, Kirk announced. That leaves Argentina in the company of Syria, Belarus and the rest of Sudan as the only countries not eligible, the U.S. Trade Office said.
President Barack Obama notified Congress of the move in a note that accused Argentina of "not acting in good faith."
The trade preference system was created in 1974 to promote developing countries, and now enables nearly 5,000 kinds of products to enter the U.S. market free of import taxes, saving their producers a total of $18.5 billion worldwide.
Obama announced the move only two days after the Argentine Embassy in Washington had sponsored a Cabinet-level mission to promote U.S. trade and investment. It's the second critical announcement from Washington this month; the U.S. government also included Argentina among countries most affected by money laundering.
Argentina hasn't paid the debt because it's desperate to stop capital flight after eating up $10 billion of its reserves last year. Having to say goodbye to more than $300 million in one blow would be psychologically damaging. But refusing to comply could have a boomerang effect, said economist Milagros Gismondi of Orlando J. Ferreres y Asociados in Buenos Aires.
"Capital flight remains very strong in Argentina," she said. "But in economics you have to really understand the consequences. The economy is a dynamic thing, not static. This could slow exports and by the end of the year have many more negative consequences than positives."
Opposition congressman Julian Obligio of the PRO party was withering in his criticism.
"The bureaucrats of this government don't understand how global commerce works, and apply measures whose failures have been proven by history," he said. "If the government continues down this road, by year's end the Argentines will be poorer and farther than ever from the quality of life our neighbors enjoy."
But Argentina's Foreign Ministry sought to blame the companies involved, Azurix and Blue Ridge, for failing to accept Argentina's terms for paying the bills. The government has not publicly explained exactly what those terms are.
"Argentina laments this attempt to obligate our country to take a decision that violates our laws," the ministry said.
According to a report in Argentina's daily La Nacion, Argentina sought to force the U.S. companies to collect their payments within Argentina, where they would be forced to comply with strict currency control rules, and under terms similar to those accepted by hedge funds who knuckled under in 2005 and 2010 and accepted 70 percent cuts in what they had hoped to get from Argentine bonds.
Associated Press Writer Luis Alonso Lugo in Washington contributed to this report.